GARY COHN, a Trump administration cheerleader for tax reform, said recently that the administration is "trying to get rid of all of the loopholes and all of the deductions that mostly wealthy people use."
Unfortunately, that is not the case. The administration tax plan does not target "all" of the deductions that mostly wealthy people use. It takes aim at one that wealthy people in mostly Democratic states use disproportionately — and leaves others hardly touched. Inasmuch as the plan contains any details on how it would pay for the tax cuts it envisions, the proposal stipulates that it would preserve two of the most expensive and wealth-favoring tax breaks: the deductions for home mortgage interest and for charitable giving. Still on the chopping block, however, is the state and local tax deduction, which helps taxpayers in high-tax states more than those in low-tax states. Eliminating it would wallop blue states such as California, New York and Illinois while leaving red states such as Texas relatively unscathed.
True, wealthy people reap most of the state and local tax-deduction benefits. But that is also true of the tax breaks the administration is protecting. The plan’s cynicism is transparent.
Mr. Cohn, director of the National Economic Council, also told Bloomberg TV that the administration's position is not set in stone. "We are willing to work with the tax writers on the other dials that we have in the system," he said, indicating that lawmakers could find other ways of paying for tax-rate cuts. They might have to. Big blue states still have Republican lawmakers in the House who will fight to preserve the state and local tax deduction. Some swing states also have large numbers of people who take advantage of the tax break. The New York Times reported Tuesday that Capitol Hill Republicans are already looking for other options.
Republicans will be tempted to jettison all responsibility and simply enact a big, deficit-widening tax cut instead of trying to close anyone’s loopholes. That would be disastrous — for the economy, for future generations and for the credibility of the GOP, which has spent the past decade pretending to care about the national debt.
There is a fairer way, which would close loopholes without singling out one tax break, one area of the country or one set of wealthy people. Congress could limit the total value of the tax breaks — of any kind — that taxpayers can claim. Americans would still be able to deduct mortgage interest, charitable giving or state and local taxes from their taxable incomes. But they would face stricter limits on how much they could benefit overall from holes in the tax code.
This idea is not new, and it is not partisan. Mitt Romney and President Trump each proposed some form of this plan in the 2012 and 2016 presidential races, respectively. President Barack Obama advanced his own version during his second term. Depending on how lawmakers crafted it, the policy could raise huge amounts of money almost exclusively from the wealthy — across the country.
A deduction cap would also face political resistance. But it would be a fairer, more honest, more balanced policy than what the administration is peddling now.
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